Pound Lose Ground on BoE Dovish Tone

• Pound Sterling weighs on BoE's Bailey dovish note.

• The U.S. dollar continues to strengthen ahead of NFP, which is due today.

• Oil prices surged sharply in the last session on Israel's retaliation prospect.

Market Summary

The Pound Sterling fell sharply yesterday, with the Pound Sterling Index (BXY) dropping more than 2% following a dovish statement from BoE Governor Andrew Bailey. Bailey indicated that the Bank of England is prepared to implement rate cuts if UK inflation shows signs of easing.

Similarly, the Japanese Yen remained under pressure, as the currency was weighed down by the dovish tone from the new Prime Minister, who suggested that the Bank of Japan (BoJ) should proceed cautiously with monetary tightening.

In contrast, the U.S. dollar strengthened on the prospect of a slower pace of rate cuts, with recent job data pointing to a tight labour market. The Nonfarm Payroll report is due today, and a stronger-than-expected reading could further bolster the dollar's momentum.

In the commodity market, oil prices surged on reports that Israeli forces are preparing to attack Iranian crude oil facilities, raising concerns over potential short-term supply disruptions. Despite escalating geopolitical tensions, gold prices remained flat, as the strengthening dollar curbed demand for the safe-haven asset.

Meanwhile, both Bitcoin (BTC) and Ethereum (ETH) have shown signs of easing downward pressure, potentially signalling a technical rebound in the near term.

Current rate hike bets on 7th November Fed interest rate decision:

Source: CME Fedwatch Tool

-50 bps (32%) VS -25 bps (68%)

Market Movements

DOLLAR_INDX, H4

The Dollar Index (DXY) continued to strengthen, buoyed by several bullish factors. Jerome Powell's hawkish stance in his recent statement emphasised the need for caution in implementing monetary easing, especially after the U.S. central bank received better-than-expected job data. This reinforced market expectations that the Federal Reserve may hold off on rate cuts for a longer period. Additionally, the rising uncertainty in the Middle East has fueled further demand for the dollar as a safe-haven currency, adding to its upward momentum.

The Dollar Index has broken its previous high at $101.80, suggesting it is currently trading in extreme bullish momentum. The RSI has broken into the overbought zone, while the MACD continues to edge higher, suggesting the bullish momentum is gaining.

Resistance level: 102.4, 103.30

Support level: 101.10, 100.30

XAU/USD, H4

Gold prices have formed a lower-high price pattern in recent sessions, indicating that the precious metal is struggling to maintain bullish momentum and may be heading for a technical correction in the near term. The demand for gold as a safe-haven asset is being countered by the strengthening of the U.S. dollar, which has prevented gold from reaching new highs. Despite the current lacklustre performance, any further intensification of the conflict in the Middle East could swiftly change the outlook. A significant escalation in geopolitical tensions may trigger a sharp rebound in gold prices as investors seek refuge in safe-haven assets.

Gold prices lack bullish momentum and are trading with a lower high, which suggests a bearish signal for gold. If gold breaks below the short-term support level at the 2638 mark, it shall serve as a bearish signal for gold. The RSI is hovering near the 50 level, while the MACD is on the brink of breaking below the zero line.

Resistance level: 2670.00, 2689.00

Support level: 2647.00, 2630.50

GBP/USD，H4

The GBP/USD pair experienced a sharp decline in yesterday's session, dropping to a three-week low. This slide came as Pound Sterling was weighed down by a dovish note from BoE Governor Andrew Bailey, who suggested that the British central bank is prepared to implement rate cuts if the country's inflation rate continues to show signs of easing. In contrast, Fed Chair Jerome Powell emphasised a more cautious approach to monetary easing, advocating for a slower pace of rate cuts. The divergence in tone between the Bank of England and the Federal Reserve led to a significant drop in the GBP/USD pair.

The GBP/USD is currently trading with strong bearish momentum. The RSI dropped into the oversold zone, while the MACD edged lower from below the zero line, suggesting that the bearish momentum is gaining.

Resistance level: 1.3220, 1.3280

Support level: 1.3065, 1.2990